Commodities (NFTRH Excerpt)

Once again, let’s look at the headline energy commodity, oil. MACD is trigger down but well above ‘0’ it is healthy in a bigger picture. If the above noted bullish inverted H&S scenario were to play out on the broad markets, one might expect downside in oil to noted support area (or perhaps down to the mid 50’s) to hold before new upside to our long held ‘best case’ target of around 78. Alternatively, and in unison with the stock market, if WTIC does not break down from that little bearish flag and instead catapults to new highs near term, that may be as good as it gets before some significant downside into year end.

As you may have seen on the blog yesterday, I took positions in both NFTRH accounts in the NatGas fund UNG. So that makes NFTRH short oil and long gas. This is the bottom feeder chart geek in me coming to the fore. I could not resist. A subscriber emailed with the news that the Wall Street Journal has just highlighted the bearish fundamentals in Gas. So now that the whole world knows how bad they are, and considering Natty turned up and finished positive after my buys near the low of the day, I will consider the risk/reward here as being acceptable. If it were to break 4.50 at any time, the target would be above the SMA 200, at around 5.50.

Doctor Copper is advised to hold that blue line or a test of the SMA 50 or quite possibly, the noted support will be prescribed. The bearish divergence by MACD says this is the favored scenario. Copper was one of the earliest commodities to bottom into Hope ’09 and should be watched for clues as to the near term fate of markets far and wide.

Recall that we had used the chart of Uranium Participation Corp. (U.to) as a proxy for sentiment of the uranium sector, as it is subject to premium/discount fluctuations. Like NatGas, uranium is a bit of an outlier in the commodity spectrum, often times out of sync with the base metals, agriculture and oil. NFTRH watched for a breakout of the blue line as a trigger to a rally and eventually, a strong rally did indeed follow. The chart below is not particularly bearish, nor bullish as a handle (defined as a consolidation of post-breakout gains) hangs around between support and resistance. MACD has consolidated nicely and is on the verge of an up trigger. Uranium should be watched as a leader going forward as well given that U.to bottomed well ahead of most everything else, in October of 2008.

The June 27th edition of Notes From the Rabbit Hole (NFTRH39) also covers the current situation in the broad stock markets along with two potential scenarios regarding the short term and its effect on the longer term. NFTRH39 updates the precious metals sector as always, looks at the US dollar and treasury bonds and details current portfolio holdings.

The markets are at a critical juncture, and while today's action may seem a grind, this condition will not endure. Things are bound to get very interesting within a few short months, if not weeks. Commodities played a key role in giving NFTRH the bullish signal many months ago. Now we watch this important sector along with many other indicators like the gold-silver ratio, to be sure we are on the right side of the inflation/deflation dynamic going forward.